Before placing your bets on a horse race, it would be nice to know which horse would win. Many CMOs today have a similar yearning when looking at the confusing and proliferating array of marketing channels. They’re not sure where to place their bets.

Marketing Mix Modeling (MMM) tries to take chance out of the game by measuring the relative effectiveness of channels. But traditional MMM isn’t keeping up with the changes in the customer decision journey. For MMM to be effective, it needs to move it beyond its traditional boundaries.

It’s worth the effort. We've seen ROI increase by 15 to 20 percent overall in companies that use enhanced MMM techniques to allocate marketing spend to channels that drive business growth. This approach requires marketers to embrace advanced analytics as a critical tool for more effective decision making to both drive and demonstrate real growth in their companies. Here’s what CMOs need to do:

1. Move from “backcasting” to “forecasting”

MMM is based on historical data so it’s great for “backcasting.” But given how quickly customer behaviors change, it falls short when it comes to forecasting. You need to supplement these MMM data by collecting insights from your managers who have deep knowledge of the industry or understand issues like media inflation, media inventory, and contracted obligations.

You also need to actively reach out to your target customers to fill in the gaps. Regression analysis based on detailed customer surveys, brand tracker surveys and focus groups can help you understand consumers at different stages of the decision journey across multiple channels.

2. Look at the complete picture

Traditional MMM is rooted in a mindset where channels live in splendid isolation from one another. Today’s world is much more complex as customers naturally jump from one channel to another. Many TV viewers, for instance, have a tablet or smartphone on hand, and search because of an ad they’ve seen. You need to capture these channel influence factors when trying to figure out how effective your channels are. An insurance carrier, for example, was able to save 10 percent on costs while maintaining its marketing effectiveness by figuring out which channels performed best. You also need to understand what aspect of the customer decision journey you’re looking to track. Traditional MMM is all about sales, but you need to understand how channels are driving engagement in the consideration, evaluation, and post-purchase phases of the buying journey as well.

In addition, channel analysis needs to expand to account for likely environmental changes. For example, you may have seen a certain return from display advertising last year but the ongoing rapid decline in clickthrough rates will undoubtedly alter its effectiveness next year. And don’t forget the host of external factors as well. Seasonality, special events, and economic cycles all affect the ROI of your channels.

3. Understand where the payoff stops

The effectiveness of MMM doesn’t follow a linear pattern. An X% increase in investment in a given channel doesn’t mean a steady Y% improvement in effectiveness in every case. What we see is that channel investments behave more like curves where the value of investment in a given channel diminishes once you’ve hit your plateau.

That means, of course, you need to look closely at your data to determine where that plateau is. Invest in those channels that still show rising effectiveness; cut back where you’ve hit your plateau. A food retailer, for example, was able to dial back investment in plateauing channels while doubling down on those with more room for growth, increasing revenue by 2 – 3 percent at the same overall spend.

4. Factor in the value of your brand

One of the established rules is that you analyze only as far as the data lets you. This can lead to the problem of “precisely wrong” answers. Rather, we advocate the application of sound judgment when the data sets are incomplete or absent. For example, we believe marketers need to overlay mix models with estimates of the impact after 12 months – the longer-term brand equity effect. As it stands, many MMM outputs don’t put any value on this and the implication is that the value of longer-term brand equity is zero. We all know that’s not right. We’ve found it possible – using brand equity trackers and looking at base (or unpromoted) volume in MMMs – to get reasonable estimates of the longer-term effect of the brand. And we’ve been able to apportion that to specific touchpoints using surveys and judgment. It’s not a perfect science yet, but in our world view, we’d rather be “roughly right” than “precisely wrong”

5. Get involved in the analysis

One of the main reasons that MMM doesn’t deliver the benefits it should is because CMOs and marketers aren’t involved in the analysis. In many cases companies outsource the analysis or throw it over the wall to an internal analytics team. The result we often see is that the CMO pushes back on implementing the findings of the analysis, either because it’s too complex or challenges the status quo. Often times there’s a high level of distrust due to a lack of transparency into the process, so even if there’s great analysis there, the CMO won’t act on it.

To eliminate that breakdown, marketing needs to work collaboratively with the analytical teams so they jointly own the insights. Marketing involvement can also provide clear direction on where to focus the analysis. Without that kind of direction, analysts tend to over-analyze every potential driver. Be pragmatic. The power of MMM is in unveiling insights that help you make decisions, not in micro-analyzing every last piece of data. That can lead to faster turnaround times and quicker decisions. With the right focus, we’ve seen the duration of many MMM efforts cut in half.

We worked with one European telecoms company that had limited visibility into the impact of its marketing (offline and online) in driving the business. By using the kind of advanced marketing mix analysis we describe above, the company was able to tease apart marketing effects at a granular, tactic-by-tactic level for both offline (TV, print, radio etc.) and online marketing (e.g. search, banner ads etc.), and the degree to which they work together. Using this approach, the company reversed its plans to cut TV advertising and boost search after realizing that TV actually helped its search. Increasing both search and TV investment, the company was able to increase the effectiveness of marketing spend by 15 percent.

MMM needs to be relevant to today’s marketplace if it’s going to deliver the results that marketers need. Or you could find yourself betting on the wrong horse.